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Ulta has been a ‘very modern retailer with a very modern retail strategy’: Analyst

Jane Hali & Associates Senior Research Analyst Jessica Ramirez joins Yahoo Finance Live to weigh in on Ulta's Q3 earnings results and the company's forward-looking guidance.

Video Transcript


SEANA SMITH: All right, have Ulta earnings right now crossing the wires. And you can see the reaction in the stock, up just about 3%. A lot of that reaction has to do with the guidance that we are getting from Ulta. The company boosting their full-year outlook here.

Full year net sales guidance now expecting to see net sales of $9.95 billion to $10 billion. Initially, they saw $8 and 1/2 billion to $8.6 billion. The company also raising its full-year operating margin estimate here, and we're seeing that reflected in the stock after-hours. Adjusted EPS for the quarter, $534. That was a beat in terms of what the Street was expecting. Revenue of $2.34 billion, also slightly better than what analysts were looking for.

For more on this, we want to bring in Jessica Ramirez, Jane Hali & Associates Senior Research Analyst. Jessica, it's great to see you. It certainly seems like investors are encouraged by these results. I know you've only had a few minutes to dig into this report, but what's your initial takeaway?

JESSICA RAMIREZ: I mean, it's definitely a colorful stock, isn't it? I think when you look at Ulta, Ulta has been doing very well in this year compared to some of the other retailers, retail stocks, just because the beauty category has been very strong. And I think it's a resilient category that we continue to see throughout the year.

The consumer has various reasons to shop beauty. And alone from beauty being a great category at the moment, Ulta's also been a very modern retail-- very modern retailer with a very modern retail strategy in place, which, again, is future-proof for when times are difficult and other retailers, again, are having difficulty with other parts of the business, either too much inventory or promotions.

They've been running a very clean promotional business in Q3. It was pretty much flat from our data that we pulled. And overall, I mean, digital omnichannel, the stores are looking great. The conversations they have with Target, the partnership there is also great. So it's quite a strong retailer at the moment.

DAVID BRIGGS: Indeed it is, up 14% this year, outperforming just about, frankly, everything on the planet. You talked about Target. How have partnerships really built the Ulta that we see today?

JESSICA RAMIREZ: Well, I think partnerships, in general-- so you have two sides, where you have this great partnership with Target, which we've seen do very well, and they've been able to manage it well because Target itself, the beauty category, has been very special. And they brought in a lot of these young brands and things like that. So it's done a very-- it complements each other on each side.

You're able to get this consumer in to Target, discover these new brands that maybe Ulta has that Target may not have. So that's, I think, quite beautiful. And also, the beauty business changed very differently at the same time, where, in apparel, we have a drop model. And that was basically new collaborations coming in to create hype and momentum with the consumer.

And then there was these unique collaborations that would come through retail doors, again, to have that consumer come in only to your door because it was exclusive. So beauty started doing a lot of that. And Ulta started catching on quite some time ago. And I thought that was absolutely great. I think one of the biggest ones that we commonly see is the Kylie Cosmetics. There, Ulta was the first one to secure that.

So we've seen them do a lot of these unique collaborations. Again, it gets the customer excited, especially Gen Z. In the quarter, they had collaborations with Disney. They had a line with Lisa Frank. These very exciting things. So I think that's part of the winning formula and, again, of a modern retail strategy that we do expect, especially by now that retailers have caught on to and really take that to the next level.

SEANA SMITH: Yeah, well, the results here boosting Ulta Beauty to an all-time high. Jessica, when you take a look at the floor plan or really, I guess, the brick and mortar side of things when it comes to Ulta adding new stores, 18 new stores in the third quarter, plans to add more in the current quarter and looking ahead to 2023, does that strategy make sense to you when we know more and more people are shopping online?

JESSICA RAMIREZ: Yeah. So it does make sense. And I think the argument of are you in store or are you online, I think what we have to remember is the consumer doesn't necessarily see what we talk about, omnichannel. A consumer sees is my shopping experience seamless?

Can I be at work and pick this up easily? I might buy something in the store while I'm there. Am I just shopping online because I'm watching something and, oh, look, she looks great with that makeup. Maybe I can find that for myself. I can go on the app. That's just the way consumers shop today.

So if there is a store, it's a medium format. It's a format that engages you. Ulta's also going a lot into services, which I noticed just quickly diving in, it was a quick-- a small increase of 1% service. But they've been trying to increase those services. And when you go online, there's so many more that you can do. There's eyebrows. There's eyelashes. There's makeup. There's hair. There's just more and more growing.

And so they're really trying to engage with that consumer, have that sticky feeling in the store and a reason for-- for them to trust them more and to stay within that space. So, yes, we do need the store. Again, if it's not a huge store and we're not having too much inventory, I think it's great. They're also coming up with this new format that's more of a curated version of this is my makeup for XYZ rather than having prestige and the mass sit in different parts of the store, which, again, I think it's a great way to engage with the customer a lot more.

DAVID BRIGGS: Sounds rather recession proof there. CEO Dave Kimbell highlighting the strong emotional connection and loyalty they've cultivated with their guests. That we are seeing in the numbers. Jane Hali & Associates Senior Research Analyst Jessica Ramirez, appreciate that. Good stuff.